A collection of often sceptical, always candid observations and insights on the US economy and large-cap equity markets. Readers have observed my style and perspective to be that "the emperor has no clothes," and that is reasonably accurate.
Postings reflect my philosophies and perspectives on economics, business and politics.

Friday, March 25, 2011

Wednesday morning's appearance by Laszlo Birinyi on CNBC caused quite a stir. He made a stunning prediction that we are currently in a new secular bull equity market. He forecast a 2100 S&P500 Index in "2 to 3 years." By my calculations, that's a roughly 60% rise, working out to almost twice the long run Index annual average performance of around 11%.

I don't personally keep track of his record on this sort of call, but I assume it's pretty good. My sense is he is very well regarded in his field.

However, Birinyi said something that fit with my own observations. He talked about equity analysts and noted that there really are no 'stock market analysts,' but, rather, 'stock analysts.'

His own firm specializes in technical analyses of equity markets generally. For example, on the subject of the North African uprisings, Birinyi cited work that his firm has done on German equity markets after the Berlin Wall fell. Maybe it's relevant, maybe it's not. But that's the sort of thing his firm does.

I can identify with that, since my own quantitative work keeps a careful eye on basic equity market trends and behaviors. Like Birinyi, I don't presently see a market in which one wants to be solidly short. There may be increased volatility compared to a few months ago, but, despite many apparent headwinds, signals still indicate solid long positions.

Birinyi came right out and said that most investors simply have no sense of market history. Therefore, they are incapable of seeing trends or understanding how markets are likely to behave.

In light of current US federal and state government spending and debt challenges, and Fed policies, it seems heroic for Birinyi to have made his unequivocal call. However, given his focus, I am inclined to assign him more credibility than most pundits on this sort of prediction.

Thursday, March 24, 2011

This earlier post described the feisty discussion between Ken Langone and one of CNBC's favorite guests, Steve Rattner.

Rattner seems to be one of those favored cronies, like Bill Ackman and Lee Cooperman, who are given air time to basically push their views in order to publicize positions and, hopefully, enhance their portfolios' values. In the second linked post, I noted,

"Cooperman clearly believes, as a result of his fund's analytical team's meetings with HD's management, that the company's stock will eventually be appreciated, even though, now, it's "undervalued." His reeling off of the many operating statistics, mostly rather abstruse numbers, sounded like he was reading from a list his analysts had prepared for him."

I hadn't reread this post in quite some time, so I was pleasantly surprised that I had noted how Cooperman seemed to be reading quickly from a script prepared by his staff.

On Wednesday, Legg Mason fund manager Bill Miller, once famous for an unbroken string of years beating the S&P500 Index return, was a co-host for a portion of CNBC's afternoon programming. He, in turn, invited Omega Advisers' Lee Cooperman to appear, via video link, as his guest.

What followed was one of the most transparent, blatant examples of self-serving, legal investment book-talking that I've seen on CNBC in quite some time. After exchanging mutually-congratulatory greetings and such with Miller, Cooperman answered some questions about market conditions and the like. He stepped through some points which were conveniently reprised on overlay text, suggesting the thing was well-prepared and coordinated long before air time. It was so pre-programmed that Cooperman evidently forgot he was on video, and began to do something annoying with his finger and his ear. I honestly don't recall what he said, as it was so fascinating, in this video age, to see him attempt to push a finger all the way through his head on camera.

Someone asked Cooperman a question about his 'single measure' or some similar term that he watches, and he gave a forgettable answer. Then, in a sudden burst of verbiage, he hurriedly said that his firm had just acquired a new client and/or several hundred million dollars to manage. He said he'd contacted all of his very excellent analysts for ideas, and then, in a blur of words that were nearly incomprehensible, Lee rattled off a list of investments they were making for the client.

I don't know quite why he was in such a rush, but he was, again, as some years ago with the Home Depot figures, reading from a script. The CNBC co-anchor made some joke about there being too many stocks named to do appropriate disclaimers on all of them. Cooperman didn't even grin- he was obviously pleased that he'd done the job he really wanted to do that afternoon, i.e., enunciate a list of equities, into which he'd already put client money, in hopes that viewers would rush to their terminals and follow Lee's lead.

When a floor specialist who can see trades coming does this sort of thing, it's called front-running, and is illegal. That's because the specialist knows which way orders are going, and takes additional positions in order to then sell them to fill the orders. When a portfolio manager goes on air to name his current positions, the effect is the same, though the act is not illegal. By publicizing his current positions, he reasonably expects some viewers to follow his lead. But, instead of selling anything to those subsequent investors, he enjoys a rise in his portfolio's value as new buyers push the prices of his current holdings higher.

Later in the afternoon, Jim Cramer, who, according to his own statements, engaged in his own brand of market-affecting tactics as a hedge fund manager, made the obligatory statements of adulation about Cooperman, thus adding more focus to the list.

The shame of it is that none of this is illegal. It may be unethical. It may, and, I believe, does constitute a sort of media-based crony financial capitalism. But it's all perfectly legal. Why else do you think so many lesser-known portfolio managers seem so thankful to get 3 minutes of air time? They just want a few of the names they hold in portfolios to be publicized, hoping some viewers, either retail or institutional, will take the bait and buy, pushing the price up further, enhancing the guest's portfolio values.

Much is still made of Cooperman's investing skills. I haven't seen one of Omega's performance reports in years, so I am not personally aware of his recent performance record. I guess we'll all know, shortly, with the new fund managers' reporting requirements arriving via Dodd-Frank.

Until then, however, few will actually know how well Omega's portfolios have been performing. But you can bet they did a little better by the close of Wednesday afternoon.

Home Depot chain co-founder Ken Langone spent two hours as a guest host on CNBC's morning program today. As usual, it was an immensely intriguing episode marked my Langone's candor bursting the fictions being spun by other guests on the program.

The first act was Langone debunking several of the self-serving, misleading statements made by Steve Rattner. I've written about Rattner in a recent post, so I'm not pretending to be neutral about him. But the wonderful thing about this morning's discussion was that Rattner, when finally forced to spin his truth-challenged story to a smart, objective, capable opponent, clearly came off badly.

The reason for Rattner's appearance was apparently some article he wrote in a European publication claiming that his government-run bankruptcy action of GM could provide a template for European nations to follow. Langone began the debate by taking issue with the utility of comparing GM before and after the bankruptcy. Rattner had crowed about various comparative measures, and Langone called attention to the peculiar nature of the bankruptcy. In essence, Langone correctly stated that the process removed senior creditors' rights, removed health care obligations in an unusual fashion, and, generally, was run to the benefit of unions while trampling the rights of legitimate creditors.

Rattner then told his fairy tale of hypotheticals, mixed with lies. For example, he repeated the usual line that 'millions of jobs would have been lost' had the government allowed GM to be liquidated. That was the predominant line used at the time, but, of course, nobody can ever prove it to be true.

Then Rattner told a baldface lie when he claimed that, to paraphrase,

'the only choices were government-assisted restructuring of GM or liquidation.'

That's simply not true. In fact, a conventional bankruptcy would have protected GM while it considered options, such as closing some units, selling others, and, generally, reviewing alternatives prior to total liquidation. Rattner simply denies this, because it's inconvenient for him to admit there was a third, available, conventional, legal option.

Rattner also disingenuously claimed that bondholders had the right to take the company, but refused. That, too, isn't true. What really happened, as news stories of the day will inform, and about which I wrote in some of my GM-labeled posts of the time, was that the government coerced bondholders to take a lower recovery than the unions received. Rattner pretends that bondholders received a fair bankruptcy court hearing, but that's not true. The entire procedure was taken out of the usual bankruptcy channels, and federal power was used to quietly bludgeon bondholders, as they were told the government would arrange a resolution leaving them nothing, or they could take what was on offer. Period.

Because of various fiduciary laws, the various funds holding GM paper had no choice, because the third option, legitimate bankruptcy process according to established law, in an independent court, was not available.

Langone and Rattner then began to elaborate on their points, with Langone repeatedly criticizing the GM bankruptcy as abnormal and wrong, while Rattner continued to claim it saved the US economy and was nothing unusual.

From there, after a few rounds of those statements, the combatants agreed they would not change each others' opinions. Then Rattner, ever the self-interested party, chimed in that he wanted viewers to believe him. No surprise there.

Since Langone is objective, and Rattner is not, it's pretty easy to see who was telling the truth.

Next, George Miller (D-CA) appeared to beat his chest over how great a Congressman he was when his party was in the majority. Specifically, he claimed total responsibility and authorship of the dreaded 'paygo' House rule, lauded every costly piece of liberal legislation passed by the recently-ended Congressional session, and, regarding health care, said he just wanted 'change.'

His exchange with Langone, and others, was less a direct debate than a clear example of big government (Miller) vs. small government (Langone). Miller made it very clear that he had no use for market-based evolution of the health care system. Missing from his self-glorifying patter were some facts. For example, that his vaunted paygo approach was just an excuse to force every new Democratic program to trigger more taxes to pay for it. On health care, rather than mention that his party stiff-armed every Republican amendment and suggestion, he instead claimed that they 'listened to academics' and various other theoreticians, mostly of a liberal stripe. True enough, the bill that passed has already proven to be engendering dozens of unintended, unworkable and undesirable consequences. Exemptions to major coverage requirements already number over a thousand.

Toward the end of the second hour, the networks resident economic moron, Steve Liesman, showed up to spew some more bad thinking and ill-informed verbiage.He drew justifiably heavy fire from Langone, Kernen and Rick Santelli for ignoring the front-line burdens of the recent health care legislation, then moved on to exhibit his complete misunderstanding of a recent Wall Street Journal editorial which ingeniously put the lie to Treasury Secretary Geithner's claim that TARP had 'made money' for taxpayers. The Journal piece provided the broader context of various Fed asset purchases, GSE takeovers, etc., which allowed bank-held structured finance assets to be valued at higher levels than they would have otherwise been, thus allowing them to repay TARP funds. In short, the editorial correctly noted that TARP was simply the named tip of a very large federal iceberg of self-dealing and non-market-based asset valuations calculated to let banks appear solvent and, thus, capable of repaying government funds. Liesman apparently failed to understand the article, gasping and sputtering that the authors, and anyone who believed them, were just ungrateful for the federal government's profitable rescue of the banking system.

It's refreshing to see a principled, reasoned, intelligent host like Langone take on some of the dissembling guests who so routinely appear on CNBC's Squawkbox. Too bad they can't fire Carlos whathisname and replace him with Langone. But I'm sure Langone would decline the offer.

Mort Zuckerman wrote a provocative editorial in last Thursday's Wall Street Journal concerning the anemic recovery in the US. He echoed some of my concerns, but provided interesting metrics to substantiate them.

For example, consider this passage,

"Quite simply, it is because households are still carrying far too much debt on their balance sheets. Relative to income, debt today is approximately twice as high for families as it was in the 1980s. Total borrowing in relation to disposable, personal after-tax income leaped to approximately 136% in the first quarter of 2008 from 60% in the early 1980s before it began to recede. It has now declined to 117% of income compared to the pre- bubble norm of 70%. To return to that level, debt would have to be reduced by another $6 trillion. Similarly, the debt-to-asset ratio in relation to household assets is currently 20%, but the pre-bubble norm was 12.5%. The deleveraging process still has a long ways to go. As more U.S. households pay down their debt, the slowdown in consumer spending will continue. The savings rate, which had averaged 8.6% during the 1980s and 5.5% in the 1990s, dropped to an alarming 2.8% in the 2000s. No longer are households engaging in mortgage equity cash-outs to the tune of over $80 billion per quarter, as they did in 2006. Cash-out refinancing today has dropped by 90%, contracting the available funds that helped power the pre-2007 spending binge."

In short, Zuckerman cites the data which explain why even the very slow job growth that seems to be fretfully emerging is not going to be sufficient to cure our ills. We're experiencing and witnessing continuing consumer de-leveraging after a decade of financial decline.

If you look closely at these comparative statistics, it describes how much different the decades of the 1990s and 2000s were from the 1980s. That earliest decade was, at the time, considered one of prosperity. Yet, in terms of personal financial balance sheets, it was relatively restrained.

From the perspective Zuckerman provides, the last twenty years have truly been an aberration.

Zuckerman continues by observing,

"Not surprisingly, middle-class Americans are growing increasingly leery of debt. This trend will continue as more families realize their retirement nest egg is going to be a whole lot smaller than they expected. Credit cards provide a marker. In a survey taken towards the end of last year by Javelin Strategy & Research, only 45% of households used credit cards in 2010, compared to 56% in 2009, and 87% in 2007.Virtually every index of consumer sentiment supports this sense of consumer restraint. In a recent poll taken by the Pew Research Center, 71% of American consumers say they are buying less expensive brands, 57% say they have trimmed or eliminated vacations, 11% have postponed marriage or children, and 9% have moved in with their families, reducing spending on alcoholic beverages, clothing and restaurants. In other words, roughly 25 million unemployed or partially unemployed Americans are focusing on basic necessities. They make up a part of the 42 million Americans on food stamps.Quite simply, American households are seeking to become net savers, not net borrowers. This is hardly surprising when real median household incomes are down over 4% from the 2000-2009 decade, according to recent research conducted by Mr. Rosenberg at Gluskin Sheff. Net worth has declined by more than $100,000 for the average household compared to just three years ago, and total household net worth is $12 trillion lower today than at the pre-recession peak—an unprecedented decline of 18.5% over three years. The bulk of this loss comes from diminished home equity, and with more than six million homes in inventory or in foreclosure, prices have been declining again for the past six months."

Here, Zuckerman has provided some of the income and spending details to identify why and how the consumer balance sheet changes he noted in the previous passage are occurring. It's stunning stuff, is it not? These are the sorts of behaviors probably last experienced forty years ago, during the Carter-era stagflation. That is, American families making sizable lifestyle changes in order to survive,

"In short, the triple whammy of weak consumer sales, a weak housing market, and a deeply anemic job market is still very much with us. There are no quick fixes to the post-bubble credit collapse. The painful process of deleveraging is far from over. Current debt loads are not sustainable either by incomes or asset values, which are falling.That's why our economic pulse is so weak. Real GDP growth is less than half of what one would ordinarily expect to see coming out of such a deep downturn. And there has been virtually no recovery at all with respect to housing, income levels and employment."

So there you have it in a nutshell. Consumer deleveraging, by the numbers. The related income and expense consequences. I think the data are convincing and compelling. We have a signficant shift in consumer economic and financial behaviors.

In conclusion, Zuckerman wrote,

"The government's February jobs report reaped a slew of cheerful headlines. But much of the bounce came in construction, where workers were kept idle by January's snowfalls. Job gains for the past three months averaged just 135,000—we need 150,000 a month just to keep pace with population. And government figures don't take into account the two million plus discouraged workers who've dropped out of the labor force over the past year and a half and are still unemployed. If counted, the jobless rate would have been 11.5% in February."

I don't particularly agree with his final comments suggesting another federal stimulus, whether monetary or fiscal. But his analysis of the current US economic situation is, I believe, correct. The trouble is, many want government to do something. Nobody seems to be capable anymore of simply accepting the pain and consequences of prior economic mistakes.

But now, that's probably what is necessary for the US economy to fully recover to its potential.

Wednesday, March 23, 2011

This past weekend's Wall Street Journal main interview was with hedge fund manager Paul Singer. I can't say I was acquainted with his work prior to reading the interview, but I was heartened, in a way, that so much of what he espoused was similar to some of my own previously-written views.

For example, Singer was unequivocal regarding coming inflation. When a guy like this begins citing 1930s era European treatises on the Germany currency debasement, you should be worried. I already am, but, of course, Helicopter Ben keeps telling people like me to have faith and quit being concerned.

Let me put it this way. Singer has built a multi-billion hedge fund by relying on his own analyses, conclusions and instincts. Ben The Bernanke is a high-level civil servant who will probably be offered another high-level, lucrative position after being Fed Chairman, no matter how badly he messes up in that role.

Of the two, Singer or Bernanke, whom do you think has the greater risk in being wrong, and, therefore, is more likely to get the current economic situation correct? And, by the way, Bernanke, as a sitting Fed Chairman, pretty much has to cheer lead on topics like saying economic growth is coming or here, inflation won't be a problem, and the world's investors won't be concerned about continued US monetary debasement.

For once, in Singer, I've found someone who echoes my own views of large US commercial banks as totally unattractive investments. James Freeman's interview quotes him as saying,

"You don't know the financial condition of [Citigroup], JP Morgan, Bank of America, any of them. Mr. Singer believes the big banks still carry too much leverage, and he doesn't trust regulators to monitor them effectively.

The largest financial institutions, he says, are "a random collection of survivors. Almost none of the survivors exist because of their perspicacity, risk controls and sound management- even the ones that are vaunted along those lines...How and why do they exist? Mostly on accident, meaning who got bailed out first and who was saved next and how did people feel and what did people say the weekend Merrill was under pressure [in September 2008]." "

Singer goes further in the next paragraphs, citing one of my own favorite risks- counterparty. He says that his fund complex has removed itself as much as possible from having any of the large US commercial banks and "the Street" as counterparties.

Singer sees Dodd-Frank as I, and many others, do, as described in the interview thus,

"The authors of Dodd-Frank claim that the law prevents the government from bailing out any particular firm, but the Fed can still provide emergency loans to a failing giant as long as it offers similar financing to other firms. "It's a very important part of this equation that a few survivors exist in this peculiar relationship with government, having to kowtow to government, make relationships with regulators," says Mr. Singer. "Are they puppets of the government? Are they cronies of the government? Will their lending be affected by the perceived whims or beliefs of the particular government regulators existing at a particular time? Yes." If the government deems a firm not "systemically important," Mr. Singer forecasts, it could spell its doom. "Small and medium-sized financial institutions may be disadvantaged, may be sacrificed in the next crisis to protect these behemoths," he says.It gets even worse, Mr. Singer says, if the government ever deems a financial giant "in danger of default"—a judgment that can be made without the consent of the firm or its investors. The business is then taken over by the Federal Deposit Insurance Corporation, with its Orderly Liquidation Authority. Once in charge of the firm, the government can discriminate among similarly situated creditors and transfer assets out of the business at will. Because of this, says Mr. Singer, creditors and trading counterparties might flee even faster than they would from a firm headed toward bankruptcy, where at least there is established law instead of regulator discretion. "You don't know how you will be treated," he says of financial institutions under the new FDIC regime. "If there are companies that are also counterparties alongside you but they've been designated systemically important, that's a clue. It's like a game of treasure hunt. It's a clue that you're going to get disadvantaged compared to them."So maybe FDIC chairman Sheila Bair and the authors of Dodd-Frank were right about one thing: Perhaps their new process for resolving failing giants really will discourage some people from lending to the biggest banks—but only at the worst possible moment.The problem, in Mr. Singer's view, will be the jarring shift from one day being an investor in a member of the "systemically important" club, to the next day being a creditor whose claim is determined by bureaucratic whim. This may be welcome news to government pension funds that will want to be bailed out, but certainly not for private investors. The speed at which a firm will collapse as word gets around that it might be headed to FDIC resolution could be "amazing," says Mr. Singer. And that "speed will drive the size of the losses."This "atmosphere of unpredictability" is harmful to America's place in the financial world, he says, and "it doesn't make the system any safer. . . . This is nuts to be identifying systemically important institutions." He views it as a poor "substitute for creating soundness and reasonable levels of leverage throughout the system."

Phrases like "bureaucratic whim" ought to make you cringe. Don't you think they have that effect on investors in, lenders and counterparties to such institutions? I do. Singer's comments confirm what many others, including me, have contended, i.e., that the comparatively predictable existing bankruptcy laws have been replaced by liquidation-by-whim and cronyism. Singer is correct to predict that funds will leave a troubled firm much faster than anyone can imagine. And, ironically, that being in a group of selectively preferred, "systematically important" designated firms lending to or investing in a large bank is actually dangerous, because you will be the least-advantaged party. The one most likely to be at the very end of any line to collect on funds due.

Thus, in Singer's view, you have government-backed large institutions continuing with risky behaviors, and counterparties like them doing the same. This, he worries, is the seed bed for the next financial meltdown. Dodd-Frank and the FDIC have replaced uncertainty with respect to government backing for large firms in the event of another financial crisis with absolute certainty that select "systematically important" banking firms will be rescued. Moral hazard is now legislatively and regulatorily banished, leading to another round of excessive risk-taking.

The final passage of Freeman's interview says a lot about Singer,

"One reason his firm has survived for 34 years, he says, is that "we try to be very respectful of the unpredictability of markets. We try to at all times at least assume that the world is not being properly run." A safe assumption. "

Tuesday, March 22, 2011

This week's announcement of ATT's proposal to buy T Mobile's US network received copious amounts of coverage in the business press.

My first inclination, to be blunt, was to check on the equity price moves of the major US telecoms for the past five years, and more.

It isn't pretty.

The first chart displays ATT, Verizon, Sprint and the S&P500 Index for the past five years. Sprint is clearly the big loser, but the other two could only manage to match the Index.

Think about that. In such a capital intensive, advanced technological business, Verizon and ATT can, at best, only manage to give you the equity market index return, with no premium for the risk of lack of diversification.

The next chart displays the long term price moves of the same series. Sprint, again, is the big loser. But the other two haven't even matched the S&P over the longer timeframe.

Conclusion?

Before you get all amped up over this proposed deal, notice that the whole sector is an investment graveyard.

My hunch, born of my experiences with predecessor AT&T from 1979-82, was right. I can still recall, upon joining AT&T right out of graduate business school, seeing the single most riveting chart describing the company's situation. It was a Yankee Group chart showing the monotonically plunging free cash flow for AT&T. A trend that had begun a few years earlier, and was proceeding at breakneck speed. Everything about the business screamed 'value destruction,' in the classic Schumpeterian sense.

Existing prices and equipment were under attack. New products would provide incredible productivity increases for customers, while transitioning AT&T from the clunky, labor-intensive world of analog to the much more competitive, less-profitable digital world.

Everywhere I looked, I saw revenue forecasts failing to displace business lost to either competition or technology. People my age received a brutally quick introduction to deregulatory dynamics in telecommunications, airlines, and banking. It hasn't ceased yet.

Now, as to the strategies and tactics of the proposed deal.

T Mobile has the valued asset, with Sprint needing it to remain relevant. So ATT promised a $3B breakup fee just to keep Sprint's hands off of T Mobile while the proposed merger is vetted by DOJ and God knows who else.

If ATT gets its prize, albeit at a P/E exceeding its own, it immediately increases its physical network assets and, perhaps most importantly, gets its target's valuable spectrum slots, while denying Sprint a viable means to remain competitive. If not, it's at least tied up T Mobile for a while, thus starving Sprint a little longer.

Why the putative architect of this deal, some investment banker from Chase, is so lauded is beyond me. I mean, with so few players, was this really something for which ATT and T Mobile needed a banker? Maybe for the basic funding mechanics, but nothing else.

As for the hoopla involving Chase underwriting the proposed deal with $20B of credit, so what? They're underwriting the purchase of infrastructure and spectrum, more than anything else. Not so risky. Given consumer behavior, even if the oligopolistic aspects of the deal allow some price increases, people are still going to continue to use their smart phones for data- and video-heavy apps, which will ensure the debt being paid off.

Meanwhile, according to CNBC's pundits and the Wall Street Journal, the regulatory issues are hardly trivial. For precisely that oligopoly effect of taking out one of four providers in the sector.

But, to me, win or lose, ATT's CEO, in an interview on CNBC Monday morning, said something that really gave me pause. Something right in line with this recent post.

Jenkins wrote about cloud computing, and smart phones certainly are a major contributor to the phenomenon. Stephens, ATT's CEO, noted that the firm needs more network capacity muy pronto, as even cars are now bringing apps traffic to cell phones. He mentioned some growth figure which, while I forget what it was, stunned me. After all, I, like many people, have already seen the commercial wherein a guy remotely accesses his car for his teen-aged daughter and her friend, then starts it via his cell phone app.

Far more than the old land-line engineers at the old Bell Labs and Long Lines, today's ATT network engineers must be terrified at the expected smart-phone and related device-based traffic coming their way on wireless networks. Meanwhile, nobody wants to pay much more for these conveniences.

Regardless of whether this deal is approved, or not, I doubt it will really make ATT a more attractive equity investment. Take another look at that second chart. None of the three telecom companies has a higher price today than ten years ago. It's just a lousy sector for investment, no matter how much more concentrated it gets. At least barring radical changes in regulatory-driven economics which allow a telco to become a reasonably pure play on market-based pricing for wireless bandwidth. Even then, however, the infrastructure requirements may dampen investor enthusiasm.

But, for now, I'd be surprised if this deal, if consummated, really does a whole lot for ATT's ability to earn consistently superior total returns in the years just ahead.

Monday, March 21, 2011

"What struck me about this was just how low the barriers to entry may well be in this product/market. I hadn't really given the business a whole lot of thought until I read this piece. Frankly, it just seems to be a tactic- couponing- that no business can afford to do too much of, without suffering serious pricing policy challenges for the long term. There's something about teaching customers to expect discounts that becomes corrosive over time."

In order to learn more about the company and its activities, and hopefully score half-price tickets to the recently-released movie The Lincoln Lawyer, I joined Groupon last week.

Overall, I've been very underwhelmed and unimpressed. I honestly can't quite figure out what all the fuss is about- for me, at least.

First, I never saw an offer for the movie. Despite being featured in the Wall Street Journal's March 16th edition, the offer never made it to my Groupon account. That's annoying to start with. Perhaps it was sold out instantly. But customer experiences like that only serve to leave a negative impression with potential buyers.

What I have seen isn't particularly earthshaking. The initial coupon was for half off on a dinner at a localish upscale French restaurant. It's disappeared, so it likely either expired or sold out. Upon closely reading the offer, the fine print was less than entirely clear. There were some weird blackout dates, a host of restrictions on how many of the coupons could be used per table, per person, etc. The term to fulfill the offer was, I believe, throughout the summer. However, it called to mind an old marketing aphorism that goes something like this,

'A coupon for something you weren't already planning to buy is no deal and saves you no money.'

In the case of the restaurant in question, while I'm aware of it, I haven't ever actually dined there. Given the circumstances under which I would use the coupon, it's not clear I know anyone who would actually prefer to dine there. So a coupon for a half-price dinner- or maybe two, it wasn't really clear- was of limited value to me.

As I scan the available deals on this Sunday afternoon, while composing this post, I see offers for Persian rugs, Lasik eye surgery, Yoga sessions, and facials. There's another restaurant deal, window treatments, door locks and bar glassware.

Frankly, none of it is compelling to me. And I've provided Groupon with more personal details in order for them to presumably target more appropriate offers to me.

It reminds me a lot of when I used to shop on eBay. If you find what you're looking for, great. If not, you're out of luck. The sort of shopping Groupon, like eBay, provides, is a sort of stream of offers which move past you. Online impulse shopping.

I could see people finding, on reflection and analysis, that they'd spent way more than they realized on unnecessary goods and services because they got caught up in the timed, networked nature of the deal excitement.

For the businesses, it seems to me to be either too small a reach to be very effective or, if it's sufficiently large to be so, then it's really expensive. And it does things like teaches people to refuse to pay full price at a restaurant, waiting, instead, for a Groupon deal.

Is Groupon more exciting than getting a Val-Pak in the mail bulging with coupons? Sure.

Is Groupon actually a significantly better, more efficient way for consumers to use coupons? I'm not sure yet. So far, I'd say no.

Sunday, March 20, 2011

Two weeks ago, I wrote this post critiquing various on-air staff at CNBC. It was a toss up to categorize Bob Pisani as one of "The Bad,", rather than "Ugly." I wrote,

"Pisani spends too much of each weekday looking astonished or surprised by some move in equities. That's when he isn't anthropomorphizing the market and cheering it onward to new heights, rather than simply reporting the facts.Anchors and reporters who can't add value beyond restating the obvious or bringing some level of knowledge to a topic, so that they can at least ask questions you would, or hadn't considered, are just a waste."

The problem is, Pisani veers dangerously close to dispensing falsehoods, which would have clearly put him in The Ugly category. The salient falsehood that Pisani peddles is that anything happening on the floor where he is stationed actually matters anymore.

Last Tuesday, I happened to see the network hold a little celebratory, self-congratulatory moment at around 3:30 for the 15th anniversary of Pisani's debut reporting from the floor of the NYSE.

In 1996, the floor saw a lot more activity. Technology for crossing trades off of the floor was much less pronounced, and the floor was actually crowded. In those days, reporters from the floor had to fight for space, often getting hip-checked and jostled during their live reports.

Not anymore. Now you see a few people in the distance, and nobody usually comes within camera-range.

The funny thing about CNBC making a big deal out of Pisani's tenure is that the guy is a no-value-added chump. That is, he adds no value to viewers, but has been known to allow himself to be manipulated by institutional fund managers to great effect, and for tremendous value.

I recall seeing an interview with Jim Cramer, in which he admitted blatantly manipulating a stock by pumping Pisani with rumors, sending the issue's price up during the day. Cramer than sold before the close, making nice profits, so he said.

How is it that CNBC, upon learning this, even considered leaving the hapless Pisani down on the floor? Doing so was tantamount to explicitly allowing fund managers a wide-open door through which to manipulate markets in favored equities.

Just incredible. Rather than celebrating the guy's tenure reporting from the floor of the NYSE, they should have pulled him years ago, out of a sense of propriety and concern for retail investors, if nothing else.

As for Pisani, you wonder whether he is too dense to understand what Cramer's interview did to his role and crediblity, or is just so arrogant as to ignore the obvious import of it.

About Me

A well-educated veteran of US corporate strategy positions & hedge fund management, as well as research, product development and project work in consulting, strategy and equity management. Academic background in marketing, strategy, statistics and economics.
Currently own Performance Research Associates, LLC, through which I am involved in proprietary equity and equity options investment management.